Posted
by
ScuttleMonkey
on Friday November 13, 2009 @03:55PM
from the what-corporate-veil dept.

ZipK writes "With their former boss cooling his heels on a 150-year sentence, programmers Jerome O'Hara and George Perez are now in the US Attorney's crosshairs. They've been arrested and charged with criminal conspiracy, and 'accused of producing false documents and trading records at Bernard L. Madoff Investment Securities LLC in New York.' Apparently Madoff's fraud was too large and too complex to be foisted entirely by hand."

China is nice enough. However, in the case of China, if your country starts telling them that you stole billions of dollars, they're going to deport you for overstaying the visa that they just terminated. If your own country says "we want him back so we can kick his arse", then it is really not worth the effort for the Chinese government to argue with your government about a potential criminal they don't care about anyway. The US has sent Chinese embezzlers back to China, I'd imagine they would repay the favor. In fact, you'd have a very hard time finding a country that will knowingly take in a fugitive unless they can prove that they are a political refugee. Agreeing to repatriate suspects is an easy and popular way to get shady people out of your own country and keep the other country happy. You have never actually needed an extradition treaty to do it. Chinese law prohibits the extradition of Chinese citizens, which means that they will probably be tried by a local court instead, doubtfully a better outcome.

Well, the problem is they were sending out statements. Those statements were theoretically based on input from the markets, after the amounts were made bigger by the black box which was Madoff's investment "strategy". Once the black box was determined to be a fraud, the programmers were done, because they implemented the black box. At that point,no amount of deleting was going to get them out of being implicated.

this things so big, the only way to destroy all the evidence is to hack into Russian missile command and launch the nukes aimed at the U.S. -- Oh, and a well timed trip to a nice country somewhere in the southern hemisphere might be a good idea.

That's like saying if you intend to stick your fingers in the meat grinder, you ought to keep something you can use as a tourniquet handy. It's true, in a completely useless way.

These guys were helping with the biggest Ponzi scheme in history. The reason that Ponzi schemes are illegal is that *they are destined to collapse*. When you're helping run the biggest one ever, it's going to be the biggest crash and burn ever. Evading the consequences means moving as much cash as you can overseas, planning to ch

And the stock market. After all, if they have a program that 'can' be used to 'manipulate the stock market' [businessinsider.com], are we to take Goldman's multi-billion dollar a quarter profit making word of "oh, but HEAVENS NO, we're not manipulating the stock market, that would be illegal - perish the thought!" word for it? Arrest those programmers too.

The idea being that a large investment firm, and possibly others and their clients, are all using certain code to help them decide when to execute trades. An unscrupulous third party could use knowledge of that code to place investments that trigger trades by GS, which is large enough to affect the market. In effect manipulating the market by manipulating GS.

The market gets manipulated by the sheer size of GS, and the main loser would be GS, as well, since they're already using their software to maximize their own benefit.

Which brings to mind the issue that the sheer size of GS is the real issue, not the software that they use. Someone here once said, "too big to fail? More like too big to be allowed to exist!" Everyone that received bail-out money should be broken into smaller entities on a staggered basis when the economy recovers.

Which brings to mind the issue that the sheer size of GS is the real issue, not the software that they use. Someone here once said, "too big to fail? More like too big to be allowed to exist!" Everyone that received bail-out money should be broken into smaller entities on a staggered basis when the economy recovers.

There's the old joke (updated for today's numbers) - "if you owe the bank $100,000 that's your problem. If you owe them a billion dollars, that's their probelm."

> Which brings to mind the issue that the sheer size of GS is the real issue, not the software that they use. Someone here once> said, "too big to fail? More like too big to be allowed to exist!" Everyone that received bail-out money should be broken into> smaller entities on a staggered basis when the economy recovers.

As someone who loves to jump back and forth between realism and idealism, I have pointed out to a few friends that if a law were ever enacted that simply laid out a bright line for w

All overheads, salaries etc ARE costs. So Dell's $1.5b profit on sales of $14b isn't at all bad at all. It's very good.

What you're talking about is margin - the difference between the cost price of something and the sale price. The figure of "30%" is a generally accepted minimum margin for a business. I think it's based on a reseller. If you buy a box of paper in at $10, then you should have to sell it for $15 (plus tax if applicable) in order to survive. That $5 should cover all of your costs, with a little left over for profit.

I have been a reseller of many things. A profit margin of 10% is amazing in the computer business, Dell being no exception. I sold a lot of Dell stuff (*shudder*). And I am not talking about net, but gross profit. Sometimes 4% was considered worth it. It all comes down to volume, ease of delivery, and credit. Everything else is just a guideline at best. If you worked at a company that only made a 1% net profit, but invested in its people, its infrastructure and its goals, would that be worth it? Super

. If you worked at a company that only made a 1% net profit, but invested in its people, its infrastructure and its goals, would that be worth it?

It may be worth it to work there, but solely as a return on investment, no it is not "worth it". There are numerous other items that could be invested in (bonds, real estate, commodities) that offer far better that a 1% return with far lower risk.

So no, it isn't worth it if you believe the sole function of a company is to generate profit. Thankfully there are a

"If you worked at a company that only made a 1% net profit, but invested in its people, its infrastructure and its goals, would that be worth it?It may be worth it to work there, but solely as a return on investment, no it is not "worth it". There are numerous other items that could be invested in (bonds, real estate, commodities) that offer far better that a 1% return with far lower risk."

The point is that there are investments and investments. You surely can find places to invest you money and get better

What you're talking about is margin - the difference between the cost price of something and the sale price. The figure of "30%" is a generally accepted minimum margin for a business.

It depends - enormously - on turnover.

If you turn over your inventory (on the average) in a week or less, like a grocery store, a 1% profit comes out to over 50% in a year (and that's not counting compounding). This is why grocery stores are VERY sensitive to shoplifting and spoilage costs.

That is only true of they are not hiding all their losses off of the balance sheet, refusing to recognize them until years down the road, etc. In that case, they would need the government's help to sur....

This is a central point that many slashdotters miss. Yes, you can technically run a business with little profit, but without profit you are not going to attract investors, and without investors you are going to die.

1% profit is not the same as 1% ROI. The first 1% is out of gross receipts, the second is out of initial investment which are two completely different numbers. 1% profit can easily be 20-30% ROI depending on the structure of the business (grocery stores come to mind).

Buffet did lobby for bailouts of a different nature, in which the government would get voting stock in the companies they bailed out, there were clear stipulations on where money was spent (so it didn't go into pockets like his), and there was massive accountability.

When Buffet bailed out GE, he laid out such a framework and encouraged the government to follow suit. And while Buffet has a high personal worth because of stock he owns, he has always been know to live frugally, and is now giving away the massive bulk of his wealth.

However Buffet is a known conservative, so a liberally-slanted website is all but obligated to go on a character assassination for no good reason. (I'm neither Republican nor Democrat. I just hate lying. If anything, I support true liberalism, in which there is less government restriction period, and personal liberties are protected as much as possible).

Buffet is a smart man. And everyone was against the bailout legislation. Except of course those to be bailed out, and the Pelosi inspired politicians.

I still remember the reports when it was first mentioned. "All my constituents aren't saying "No", they're saying "HELL NO!"". All that got swept under a pile of money however.

It's curious for me that, living in Costa Rica, the US dollar has plummeted against our local currency - to the point where a can of Coke is now twice as expensive here versus in the US (due to local inflation continuing despite our currency appreciating against the dollar). I think soon US citizens won't be able to afford to travel outside the US. It's a real pain in the ass for me, because I earn in dollars, so I'm becoming relatively poorer too compared to my wife who earns in local currency. We're talking 10-15% poorer in the past 3 months alone. Running the money printing presses in the US has everything to do with this. But no one listened to Ludwig von Mises [wsj.com] the first time, anyway.

And yes, Buffett did benefit from the bailouts... Not to mention Buffett recently tried to back Goldman's recent proposal to buy tax credits from Fannie Mae [ritholtz.com]. He's not the boogeyman, but he's not the nice, friendly man with a sincere belief in capitalism that he is sometimes made out to be.

The conservatives have spent how much on two wars? An honestly reported Defense budget, where costs such as medical care for wounded vets aren't shuffled over to HEW, makes military spending well more than 50% of the total. You could completely close all federal programs except prisons, war on drugs and defense, privatize everything there that you could, and you still have an incredibly bloated federal government at zero % liberalism.
And it was conservatives that rushed through the biggest single spending program ever, a bank bailout with no strings attached. The 'liberals' have spent less on this, taken more time for rational debate, and demanded more accountability. (And still ended up giving away our money to parasites and freeloaders, but at least at a slightly lower rate than your beloved conservatives).
You do know, don't you, that it's conservative drug war policy that drives over 90% of our foreign aid to South and Central America? See, when we give Colombia modern troop transport helicopters for anti-drug use, we have complaints from their neighbors that those choppers could be used for other activities, such as a nice little invasion, so we give the neighbors aid to buy more military hardware too, whether they have the same drug problems or not, until there's a balance of power restored. It's conservative mandated spending, and really spending driven by the DEA, but it gets blamed on the 'liberals', since it goes on the books as foreign aid, and 'everyone knows' that's them bleeding heart do-gooder types.
Education? No Child Left Behind is a conservative program. How much did it add to government controls and the tax and spend mentality? Has it worked?
Why are there now 17 federal agencies where there are firearms carrying agents (and yes that excludes the military)? Are liberals the ones giving out more guns to BATF, DEA, Dept. of the Interior, and so on, and how does that fit with getting government out of our lives?

Since when was it a crime to have a former CEO in charge of the US Treasury, who has an obvious financial interest in the firm's survival?
Since when was it a crime to be the exclusive market maker in CDS, after your two major competitors go out of business, giving you a completely risk-free profit on bit-ask spreads?
Since when was it a crime to upgrade a company whose stock offering you are underwriting?

“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,” Goldman’s Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”

"We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all."

Apparently this guy is either in denial or is ignorant about what GS is actually doing -- it is clear that their high-speed trading is effectively a zero sum game and by enriching themselves, they are not providing greater prosperity for others. In fact, they provide the reverse -- they impoverish the rest of us.

But what should we expect from them? When I was young (a long time ago), the banks did not

it is clear that their high-speed trading is effectively a zero sum game and by enriching themselves, they are not providing greater prosperity for others.

So long as I can still make money day trading on the stock market, I don't care. And I CAN still make money.

The high speed trading provides liquidity. I need someone to buy stock from me or sell stock to me. Without these traders, I'd place a bid/ask and wait. And wait. And wait. And maybe I'd get my price. Mayb

The alleged benefits of high frequency trading are way overblown. It wasn't until the last few years that it became prevalent, and I think it would be very difficult to argue that we're any better off with that "liquidity."

And the argument really falls apart when you look at which stocks are being traded. The algos all pile onto whichever stock is the worthless piece of paper du jour, leaving the bid/ask spreads on less popular stocks unaffected. CitiGroup and AIG already have enough liquidity.

The injunction of Jesus to love others as ourselves is an endorsement of self-interest

Ah yes. A great Biblical scholar. All Biblical scholars know that Jesus definitely was trying to protect self-interest. So was Paul, when he said

Philippians 2:3 (New International Version)Do nothing out of selfish ambition or vain conceit, but in humility consider others better than yourselves.

And Jesus when He talked about being meek, humble, lowly, generous, forgiving, feeding the poor, clothing the naked. And the rest of the Bible when it talks about humility, that God hates the pride, that God "sides" with the humble, that God resists the proud, that God sees the poor and needy, that God judges the unjust - especially when they are rich and they unjustly treat the poor...

Definitely "an endorsement of self-interest." Frankly, I would guess that Griffiths has never read the Bible but pulled that quote from somewhere because he was in St. Paul's Cathedral and thus wanted to appear religious in some way. To most people that actually have read the Bible and even more so to people that believe it, he only comes off as being ignorant and just using the words of Jesus to excuse his own selfishness and greed (also talked about in the Bible in quite condemning terms). Not sure that's what he meant to do.

Unless the programmers were committing fraud by asking people for investment money with no intention to return it, how are they breaking the law? I'm unaware that Madoff was hacking people's computers, creating viruses, or even downloading copyrighted movies.

Unless the programmers were committing fraud by asking people for investment money with no intention to return it, how are they breaking the law?

I understand Madoff would provide quarterly statements showing a more-or-less constant rate of return, listing fictitious trades that would justify the rate of return, using knowledge of actual prices in the past quarter to get the numbers to come out just right (which is easy enough in hindsight). I'm all for presuming these guys innocent, but I think your outr

Goldman Sachs's behavior is probably completely legal (that doesn't mean it's morally right, just legal). Also, it's extremely unlikely that programmers working in the bowels of the big investment banks (GS, MS, BoA) are in on any lawbreaking that does occur.

It seems like these guys made several stupid mistakes:- Being loyal to Madoff et al once they knew what was going on.- Being willing to lie to the FBI and/or SEC.- Taking big bonuses to keep their mouth shut.- Staying in the country after the house of cards fell apart.

The thing with Goldman Sachs is completely different than Madoff. Madoff duped investors in thinking he was making trades when it really was a large Ponzi scheme. Someone had to generate the fictitious paperwork for the investors and these programmers were allegedly behind it.

Goldman Sachs made huge bets in the housing market. When the housing market fell, Goldman (who had placed a lot of money into this market) lost big.

Hate to break it to you, but Goldman never "lost big" -- that's what the outrage is about. They made big bets with AIG betting against the housing market, and bet against AIG in the CDS market to hedge the risk of AIG collapsing.

So (1) they won big when the subprime market fell, (2) they won big when AIG didn't fail as expected but was bailed out could repay $17bn worth of bet winnings, (3) they won big when all their competitors who actually believed in the housing market collapsed or suffered, and Goldman

I always tell my kids that "so-and-so made me do it" is no defense. And I'm sure nearly every parent has taught their children that for generations. I hope these guys roast for not listening to their parents!

[sarcasm] Oh, whatever. You know very well that your kids need parties and alcohol in order to get proper social interaction skills! Because once they get to the business world, they need to know how to interact with people while getting drunk! Or something like that. [/sarcasm]

(I agree with the "good father" bit, by the way. thanks for being one of the few...)

Being a good father isn't about micro-managing your child's day to day activities (and let's face it, if they're being dropped off at a party that has booze, chances are they aren't all that young). It's about teaching that same child that whether there's booze there or not that he shouldn't partake. And that, worst case, if he is going to drink that he needs to do so in a responsible way.

It's not so much that going in, seeing alcohol and dragging him back home is such an awful thing to do. It's that a

There are so many great opportunities out there for making a legitimate living programming that it makes me wonder why these guys volunteered to spend the best years of their lives stealing from people.

There are so many great opportunities out there for making a legitimate living programming that it makes me wonder why these guys volunteered to spend the best years of their lives stealing from people.

Something like this, they'd have to be paid a lot better than what they could make legitimately.

Madoff told DiPascali to pay the programmers "whatever they wanted in order to keep them happy," the investigators said, and the programmers received pay increases of about 25 percent and net bonuses of about $60,000.

Pay increase of 25% above what was probably already a good salary and a bonus that alone matches or exceeds what a lot of programmers make in a year.

A 60k bonus for a good 'lead' programmer working in the financial industry is very low.

Maybe they weren't good programmers. Programmers with mediocre skills (or something else that would have looked wrong on a resume) and flexible morality might have been exactly what was bought here. They'd be paid more than they could get anywhere else so less worry that they'd run off. And because Madoff was running a Ponzi scheme, he didn't need high quality programmers (or other staff on the financial side) any more. He just needed enough staff to make it look good. The sales end would be the only place

You're a computer programmer, in your mid 40s. Finding work is difficult for a programmer after 40, every one around you is becoming stinking rich, law enforcement seems to not pay attention when things go well, you have kids in college, and you boss is pressuring.

Every day you go in and deal with these people, everyday they lie and cut corners and get rich without any legal issues.

What they did was wrong, but I can certainly understand why they did it, and I can't say for 100% I wouldn't have done the same thing. I like to think I wouldn't, but still.

Some people don't have your morals, and might actually find a high paying job like this desirable: (cnn) [cnn.com] "A new lawsuit alleges that convicted swindler Bernie Madoff financed a cocaine-fueled work environment and a "culture of sexual deviance," "

What do you mean? So a good software guy makes some low 6-figure salary, Madoff's guys made close to 7-figures, if not more. Even the secretary there made over 200k..

A good software guy can buy a house in the suburbs, not too far from the office and maybe drive a Lexus. These guys lived in Manhattan and drove $100k+ cars, probably had a couple. You might have a babysitter or day care, they have au pairs. You have some 401k matching up to a few percent, they get maxed out and then they get to inves

A good software guy can buy a house in the suburbs, not too far from the office and maybe drive a Lexus. These guys lived in Manhattan and drove $100k+ cars, probably had a couple..

Houses in the suburb can be pretty expensive. By me, in a mediocre neighborhood (middle-middle class) you're still talking 500k for a 2-3 bedroom house in the suburbs. Heck, 1 bedroom condos are often 275k.

After the Y2K and the 2001 tech crash, there wasn't as much of a demand for coders, especially with most of the new projects being web based - if you were a C/C++ coder, there were more coders than jobs.* Also, offshoring was picking up steam and then there is the age factor. When you get above 40, folks start wondering why you're still wanting to code or they think you're too old to be doing the 80+ hour week crunch periods or you're not willing (or too smart) to do that - either way, the

If you've followed the details of the Madoff scandal, it was obvious that it required substantial computer support.

Each month, Madoff's investors got statements which showed fictitious trades and fictitious profits. The phony trades were for real stocks, with prices which were (almost) real. But the trades were chosen retrospectively, which is like betting on a race after it's run. So superficially reasonable statements came out.
This was all generated on an AS-400 that had been in use for this for several decades.

The software wasn't very good. If they'd been better at it, they could have generated statements which showed trades which exactly matched real trades of others (from the "tape"; trades are public but traders are anonymous), delivered trade confirmations every day, and still shown phony profits just by picking trades randomly distributed around the 75% of each day's trades. That would survive external examination, but not a real audit. Close looks at Madoff statements show trades which could not possibly have occurred; the price is outside the day's trading range. Sloppy.

If you've followed the details of the Madoff scandal, it was obvious that it required substantial computer support.

Each month, Madoff's investors got statements which showed fictitious trades and fictitious profits. The phony trades were for real stocks, with prices which were (almost) real. But the trades were chosen retrospectively, which is like betting on a race after it's run. So superficially reasonable statements came out.This was all generated on an AS-400 that had been in use for this for several decades.

The software wasn't very good. If they'd been better at it, they could have generated statements which showed trades which exactly matched real trades of others (from the "tape"; trades are public but traders are anonymous), delivered trade confirmations every day, and still shown phony profits just by picking trades randomly distributed around the 75% of each day's trades. That would survive external examination, but not a real audit. Close looks at Madoff statements show trades which could not possibly have occurred; the price is outside the day's trading range. Sloppy.

I went to an engineering school that was founded in the aftermath of WW2, so had a strong ethos of: "scientists and engineers need to understand what we're doing and why, not just implement stuff other people tell us to". I.e., don't assume the people above you are in charge of the "why" and as the scientist/engineer all you need to care about is the "how". Usually it's seen as more of an ethics thing, but interesting to be reminded that on occasion it can be a matter of self-interest, too, since you have a legal responsibility to know what you're doing and why, at least to some minimum degree.

When you are a little fish . . . run to your lawyer, then together make yourselves the very best friends that the FBI ever had.

Yes, run. It is official Justice Department policy that only the first conspirator [justice.gov] to report a criminal conspiracy gets off:. "(the) Division frequently encounters situations where a company approaches the government within days, and in some cases less than one business day, after one of its co-conspirators has secured its position as first in line for amnesty. Of course, only the first company to qualify receives amnesty. "

Madoff kept all of his billions of money in a single account at JP
Morgan Chase bank. If they are going to bust his programmers,
they should bust his bank too. Even for a bank the size of Chase,
Madoff just leaving billions of dollars sitting in the account instead
of investing it like he claimed to be doing must have gotten their
attention one or a hundred times. If the bank
looked the other way [time.com] to hang onto a lucrative cash deposit, they
are just as guilty as the programmers.